The Odds are NOT in Your Favor
Ever stopped to wonder why companies are so happy to offer you 0% interest credit cards? Or why they are so pleased to let you borrow hundreds or thousands of dollars? All while you walk away with their product?
Is it because they want you to have the latest Super HD TV, or because your old couch doesn’t quite “go” with your coffee table?
I’m afraid to say, there ain’t no such thing as a free lunch. They aren’t doing this out of the goodness of their hearts. The truth is quite the opposite, they’re counting on you failing.
Underneath all the marketing glam surrounding 0% interest credit cards, is a term known as deferred interest. Deferred interest can be an amazing tool for building credit, smart debt payoff, and getting through unforeseen emergencies, but it can also be a sneaky threat to overcome.
Lets say you sign up for a 0% interest for 18 months offer through your local electronics store. You get approved and buy the latest and greatest TV for $3,000, all at 0% interest! Win-win right?
For the electronics store, definitely. For you, maybe…
You see, if you don’t pay off the $3,000 within the 18 month promotional period, YOU GET CHARGED WITH 18 MONTHS OF INTEREST!
Now, you’re $3,000 TV costs $1,000 more, not to mention the interest charged on the remainder of your payoff plan (likely another $1,000).
And it happens ALL THE TIME.
The electronics store would rather you NOT pay on time. They get their profit on the TV, now they make a profit on lending you money. Instead, you’ll find uncharacteristically low minimum payments. This ensures you won’t pay off the balance within the promotional period.
The game is stacked against you, but you CAN win if you’re prepared.
Winning the 0% Interest Credit Card Game
Before you ever sign up for a 0% interest credit card offer, or spend a single dollar, make sure you can afford the item. You should base this on the amount of the item divided by the promotional period, NOT based on the minimum payment. So in the example, we wanted a $3,000 TV over an 18 month promotional period, that’s $167 per month.
If you can work this $167 in to your budget, good news, you can likely beat the system. That means a $3,000 TV with no added interest. If $167 per month is outside of your financial reach, you may want to reconsider. Unless of course you love supporting your local electronics store.